Logistics providers shift focus to small retailers

Logistics providers and small retailers are feeling the effect of Amazon Prime's free and fast shipping, according to The Wall Street Journal.

Smaller retailers are challenged to keep up with customer demands for shipping, while delivery companies face the threat of losing business as Amazon expands its fulfillment and logistics services.

This "Amazon Effect" has led logistics providers to change their strategies to focus on smaller retailers:

In February, FedEx opened up its logistics management service, previously reserved for large-scale retailers, to smaller players. FedEx packs merchandise for sellers using the service at its Indianapolis distribution center and provides two-day shipping on all items.

Small retailers' demand for fulfillment services has led to opportunities for new entrants in the logistics segment. For example, ShipBob, which provides warehousing and packing services for retailers, opened its first facility less than two years ago, and it's already doubled the size of its flagship center in Brooklyn. It may also open a fourth facility in May. Meanwhile, companies like Red Stag Fulfillment aggregate shipping orders from small retailers and negotiate lower rates.

The demand for shipping and fulfillment services from small retailers will likely lead to increased competition in the logistics market. As Amazon continues to raise the bar on fulfillment, small retailers may lean more heavily on logistics providers to ensure they are meeting customers' shipping demands. As this demand increases, it will attract more companies, such as Red Stag and ShipBob, as they look to take advantage of the new logistics landscape.

The parcel delivery industry — a segment of the shipping sector that deals with the transportation of packages to consumers — is booming thanks to e-commerce growth, and players outside the industry want a piece of the pie.

Transportation and logistics could be the next billion dollar opportunity for e-commerce companies. The global shipping market, including ocean, air, and truck freight, is a $2.1 trillion market, according to World Bank, Boeing, and Golden Valley Co.

There is much at stake for legacy shipping companies, which have seen a boom in parcel delivery as e-commerce spending has risen. Twenty different partners currently share the duties of shipping Amazon's 600 million packages a year, with FedEx, USPS, and UPS moving the most.

Amazon, Alibaba, and Walmart have so far focused on building out their last-mile delivery and logistics services but are increasingly going after the middle- and first-mile of the shipping chain.

Amazon has already made major moves across each stage of the shipping journey. It launched same-day delivery service, which it handles through its own fleet of carriers, cutting out any third-party shippers. The company also recently began establishing shipping routes between China and North America.

Walmart's interest in expanding its transportation and logistics operations is almost purely related to cost-savings. It's begun leasing shipping containers to transport manufactured goods from China and is making greater use of lockers and in-store pickup options to cut down on delivery costs.

Alibaba has begun leasing containers on ships, similar to Amazon's Dragon Boat initiative. This means that Alibaba Logistics can now facilitate first-mile shipping for third-party merchants on its marketplace.

In full, the report:

Sizes the market for the shipping industry.

Explains how the industry operates in broad terms.

Suggests why major e-commerce retailers should disrupt the space.

Outlines the shipping initiatives of Amazon, Walmart, and Alibaba.

Concludes how these moves might impact traditional carriers.

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